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Until late in the twentieth century, internal corporate governance - that is, decision making by the principal constituencies of the firm - was clearly distinct from outside oversight by regulators, auditors and credit rating agencies, and markets. With the 1980s takeover wave and hedge funds’ and equity funds’ more recent involvement in corporate governance, the distinction between inside and outside governance has eroded. The tools of inside governance are now routinely employed by governance outsiders, intertwining the two traditional modes of governance. We argue in this Article that the shift has created a new governance paradigm, which we call inside-out corporate governance.

Using the inside-out model as our lens, and drawing on comparisons to Italian and E.U. governance, we explore three areas of corporate governance that have been pervasively restructured by the Dodd-Frank Act and subsequent regulation: proxy access, credit rating agencies, and derivatives. We begin, in Part I, with proxy access, arguing that the new scheme for minority shareholder access excludes the very outsiders it ostensibly integrates into corporate governance. In Part II, which focuses on auditing and credit rating agencies, we argue that the inside-out relationship - in which the corporation itself chooses its gatekeeper - is deeply problematic but cannot be “cured.” The most realistic strategy is to create more flexibility in the audit relationship, and diminish the importance of credit ratings. Part III analyzes the new derivatives regulation. Here, we argue that Congress’s effort to sharply separate the inside and outside uses of derivatives is incoherent from a corporate governance perspective. We conclude by briefly speculating about the future implications of inside-out governance.